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Shorting volatility ETFs
Mikko M
posted Sep 12, 2016

Hello, looking for some info from volatility etf traders..

I'm experimenting with a volatility algo that sometimes makes considerable short positions in volatility etfs (VXX, XIV for example)

I'm getting very good results from backtesting but I have not traded this with actual money so are there pitfalls in execution side that quantopian is not able to model?

(I'm aware of the volatility risks associated with trading volatility so no need to inform me about algo risks, this question is about execution risks that quantopian is maybe not able to model correctly)

4 responses
Mikko M
Sep 13, 2016

bump

anyone?

Simon Thornington
Sep 14, 2016

I haven't had any particular problems. There's the short borrow fees, but those are relatively low for VXX and XIV, last I checked. A couple of times I wasn't able to find any shares to short, but it was resolved by the next day.

James Hutchison
Sep 14, 2016

so far i haven't noticed any obvious issues

if you use vmin/vmax the back test may be inaccurate due to the low volume but my live algo uses vmin instead of xiv and everything fills easily in live trading

Luke Palmer
Sep 20, 2016

I do not know the answer but I understand your question.

If you pull up a 2-5 year chart on any volatility ETF (VXX,UVXY,etc) you can see that they get absolutely crushed mainly due to the expenses that go along with constantly having to roll forward their futures contracts.

However, the question of is this a profitable short in real life? I am not sure- looking at those charts it seems almost too obvious so I am guessing there is something that would make a long term short not as profitable as you would think.

http://seekingalpha.com/article/3990719-know-many-etfs
Check that out if you want more info.

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